The furor over Lord Young of Grafham’s comments over British standards of living are insensitive, likely to be viewed as Thatcherite and embarrassing to the Prime Minister – but he’s probably right!
For those not in the know, Lord Young is an unpaid adviser to the current Prime Minister having previously been at the Department of Trade and Industry under Margaret Thatcher. Beneath that kindly uncle exterior however lies an unreconstructed right winger who famously took on Norman Tebbit over the running of the 1987 Election Campaign. You’ve got to have some balls to do that!
Anyway, echoing Harold MacMillan’s famous words that “you’ve never had it so good” Lord Young has told the British public that historically low interest rates of 0.5 per cent mean that we are all paying back much less on our monthly mortgage costs which means that we’ve never had so much disposable income. As you can imagine, this has set off a right old battle with the current PM publicly distancing himself from the comments.
Intriguingly however, almost exactly the same argument was made to me by a client about a week ago, namely that low interest rates are a legal drug we are all going to have to wean ourselves off.
Why? Because the medium term risk is not a double-dip recession but inflation, due to the huge amounts of extra money that have been pumped into the economy, firstly via low interest rates and secondly by quantitative easing or printing money.
The traditional British blunt instrument for dealing with inflation has been higher interest rates which takes money out of people’s pockets. What are the timescales for this? Difficult to say but it is interesting to note that one member of the Bank of England’s Monetary Policy Committee voted in favour of a quarter point rise in rates at the last meeting.
Why then, if he is right, have his comments been received with such scorn? I suspect it’s because, despite the cash windfall many of us have chosen not to spend but to pay off credit card debts plus the state of the economy has left us worrying about job security. It may be that we have never had it so good, but unfortunately many of us are not feeling that great at the moment.